Exclusive: United Tech, Pentagon in $1 billion-plus deal for F-35 engines

WASHINGTON Mon Aug 26, 2013 1:42pm EDT

Third Marine Aircraft Wing's first F-35B arrives on the Marine Corps Air Station Yuma flightline, in Yuma, Arizona, in this U.S. Marine Corps handout photo taken November 16, 2012. REUTERS/U.S. Marine Corps/DVIDS/Lance Cpl. William Waterstreet/Handout

Third Marine Aircraft Wing's first F-35B arrives on the Marine Corps Air Station Yuma flightline, in Yuma, Arizona, in this U.S. Marine Corps handout photo taken November 16, 2012.

Credit: Reuters/U.S. Marine Corps/DVIDS/Lance Cpl. William Waterstreet/Handout

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WASHINGTON (Reuters) - Pratt & Whitney, a unit of United Technologies Corp, has reached an agreement in principle with the Pentagon on a contract to build 39 engines for a sixth batch of F-35 Joint Strike Fighters, three sources familiar with the deal said on Monday.

The agreement - which Pratt had expected to reach over a month ago - is valued at more than $1 billion, said the sources, who were not authorized to speak publicly.

The Pentagon agreed on the terms of a contract for the sixth and seventh orders of F-35s with Lockheed Martin Corp, which builds the jets, in late July. The government buys the engines separately from Pratt & Whitney, which is the sole producer of engines for the radar-evading warplane.

The negotiations between Pratt and the Pentagon's F-35 program office had focused only on engines for the sixth batch, with separate discussions planned for a seventh batch of F135 engines.

Pratt President Dave Hess had told Reuters in June that he expected to reach a deal with the Pentagon within 30 days on the next engine contract, reflecting a cost reduction of less than 10 percent.

No further details were immediately available about the new agreement in principle, which the sources said was reached by Pratt and government officials last week but which has yet to be announced.

Officials at Pratt and the Pentagon's F-35 program office had no immediate comment on the deal, whose terms will now be finalized in coming weeks and months.

Pratt has said the cost of the F135 engine it builds for the F-35 fighters is down about 40 percent from 2001, when the program began. The company finalized a $1 billion deal for a fifth batch of 35 engines with the Pentagon in May.

The sixth engine contract includes 39 engines - 36 for F-35 planes and three spares, according to Pratt & Whitney.

Hess told Reuters in June that F-35 engine sales would account for more than 50 percent of the company's military engine revenue in coming years, when production ramps up, reaching $2 billion by around 2018.

Hess said that last year, military engine revenue accounted for about $4 billion of Pratt's total revenue of $14 billion.

Shares of United Technologies were up 0.6 percent at $103.41 on Monday morning on the New York Stock Exchange.

(Editing by Gerald E. McCormick and Matthew Lewis)

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Comments (3)
SaveRMiddle wrote:
Never too poor for war toys or internal spying enhancements but we MUST do something soon regarding Social Security and Food Stamps.

Aug 26, 2013 11:26am EDT  --  Report as abuse
spankleelee wrote:
Are the union buster fees included in those contracts? Or are they listed as something else?

Aug 26, 2013 3:10pm EDT  --  Report as abuse
tipjet wrote:
Really, how hard is it to negotiate when you’re the sole source for the engine and the US Government has committed to delivering aircraft domestically and internationally. Looks like P&WA has got the customer(s) by the short hairs. Bet the price would have been, oh, a wee bit lower if GE had been allowed to compete.

Aug 26, 2013 4:22pm EDT  --  Report as abuse
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